The Hemisphere: Stagnant Economies

The hemisphere’s top government planners sat down in a glossy Mexico City hotel last week to analyze what is wrong with the economy of Latin America. Before them was a massive, 484-page report compiled jointly by the U.N. and the Organization of American States. Two words among the thousands summed up the situation: “relative stagnation.” A Mexican delegate put it more bluntly. “I prefer to call it plain stagnation.”

Judging by the report, he was very nearly right. The growth in the region’s economy in recent years, when divided among the population of 220 million, amounts to virtually no growth at all. Alliance for Progress planners figure that a 2.5% per capita annual growth in gross national product is essential. But only two Latin American countries have averaged more than 2% in the past five years. The rest have failed to keep pace with a 2.9% population growth. Almost every sector of the economy is in the doldrums.

Exports are in deep trouble. Prices of Latin America’s major commodities—mostly agricultural products (cacao, sugar, coffee), minerals (lead, zinc) and petroleum—are down and slipping lower. Between 1957 and 1960, the overall price decline amounted to 11.5%, effectively canceling out a 13.5% increase in the volume of goods sold abroad. “This situation,” said the report, “is unparalleled in other underdeveloped areas of the world.”

Capacity to import is tied directly to export earnings and is therefore stagnant as well. Excluding Venezuela, which sparked an extraordinary $803 million injection of dollars for itself by selling oil concessions in 1957, Latin America had only a little more cash available for imports in 1961 ($7.19 billion) than it did four years before ($7.17 billion). To make matters worse, says the report, “the population of Latin America grew by approximately 12% during the period. Consequently, per capita capacity to import has tended to decline.”

Private foreign investment, one source of funds to finance imports of goods and machines needed for development, shows little or no increase. Aside from the Venezuelan windfall, new direct private foreign investment amounted to $622 million in 1957, $642 million last year, and averaged about $635 million in the years between. Moreover, foreign investors sharply decreased the money they were willing to risk on primary industries (mining, petroleum, agriculture) necessary to build a foundation for the area’s economy. Instead, they switched their emphasis to secondary manufacturing businesses (appliances, automobiles, computers), which are less subject to nationalization or heavier taxation.

Inflation, always a bugaboo, is in a disastrous upward spiral. With export income and foreign investment at a standstill, governments are forced to borrow or print money to support domestic industries and put their growing populations to work. But the increased currency in circulation is not matched by an equivalent increase in goods for sale. Thus prices climb higher, and the cost of living rises far faster than the world average. In the past five years, the cost of living jumped 212% in Argentina, 158% in Bolivia. 146% in Brazil, 111% in Chile, 133% in Uruguay.

When the technicians in Mexico City complete their assessment of the facts and make recommendations, it will be up to the hemisphere’s finance ministers, meeting in the same place a fortnight hence, to develop a plan of action. Almost certainly, a heavy share of the burden will fall on the people of the U.S.—as taxpayers and consumers. Under the Alliance for Progress, the U.S. is already committed to $20 billion worth of support over the next ten years. Reversing a position of long standing, the U.S. has also agreed to take part in a scheme designed to support coffee prices. It may now be asked to do the same for such other Latin American commodities as cacao, lead and zinc.